Virginia and $90 Oil

The global surge of energy prices to a permanently higher plateau may be occurring even more rapidly than I had expected. The price of oil has surged past $90 per barrel, up from $80 when I last took note on this blog. And if a new study by German-based Energy Watch Group is anywhere near correct, it could shoot far higher. That study, as reported by the Guardian, predicts that oil production peaked in 2006 and could decline as rapidly as 7 percent per year. Global oil production could tumble to half current levels by 2030. Folks, that’s only 23 years away.

“The world soon will not be able to produce all the oil it needs as demand is rising while supply is falling. This is a huge problem for the world economy,” said Hans-Josef Fell, EWG’s founder and the German MP behind the country’s successful support system for renewable energy.

Now, I’m not as pessimistic as the authors of this study, who have an explicit renewable energy agenda. I give more credit to the ability of capitalism to adapt. Higher energy prices will incentivize oil companies to explore in ever more remote places and make it economical to tap previously unprofitable reserves. We’ll see more deep-sea oil production, and more mining of shale and oil sands (with the attendant environmental costs). We’ll see more money plowed into solar, geothermal, nuclear and biomass forms of energy, more money spent to develop hybrids, fuel cells and electric cars.

But if the German study comes even close to accurately forecasting the future — even if oil production only declines at a rate of 2 or 3 percent per year — Virginia’s auto-centric, oil-dependent economy is in for a world of hurt. With global demand continuing to rise, prices will soar. One day, $90-per-barrel oil will seem like a bargain.

Virginia’s transportation system is designed for cheap energy: Virginians drive more than other Americans on average, which means we drive more than almost everyone else in the world. Because we consume more gasoline than almost anyone else, our standard of living is more vulnerable to rising petroleum and gasoline prices. Making matters worse, the higher price of petroleum also drives up the price of asphalt, a major constituent of roads: asphalt. The more lane-miles of road we build, the greater the ongoing maintenance cost we incur.

Virginia lawmakers, and the public, are still living in a dreamworld where they think that building more roads can solve our transportation problems. Wrong. Maintaining our current policies will not only prolong the traffic-congestion crisis and harm the environment, it will undermine our standard of living as the cost of gasoline claims an ever greater share of Virginians’ disposable income.

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48 responses to “Virginia and $90 Oil”

  1. Anonymous Avatar

    You are saying that if oil prices get high enough our roads will be less congested?

  2. Jim Bacon Avatar

    Higher gasoline prices will encourage motorists to seek alternatives to one-man/one-car. But it’s critical that alternatives exist. We’ve bolluxed mass transit, and we’ve botched our human settlement patterns. It will take extensive institutional change to turn the situation around. We’ve made a few tentative steps, but they’ve fallen far short of what’s needed.

  3. Freedom Works Avatar
    Freedom Works


    You are conflating two different issues, mobility and energy.

    The success of toll roads indicates people are willing to pay more for mobility. So don’t jump on the stop building roads bandwagon just because the price of oil is rising.

    The price of oil could double again, and all most commuters have to do is buy a hybrid to keep their energy costs the same.

    Besides, as alternative energy use increases, costs will fall, and energy prices will plateau and then drop.

    Eventually, we will build only concrete roads and drive only electric cars.

    Who needs war for oil?

    $90 oil is not particularly bad news because on the positive side it will get us over our Middle East oil addiction sooner.

    Eventually, like computers, new technologies in solar and other alternative energy sources will result in a free fall of energy prices.

    What will the administration warmongers and the environmental doomsayers do then?

    We still need more freedom in land use so more individuals have the opportunity to acquire housing near their employment.

    Now we have three issues in the mix: mobility, energy, and zoning.

  4. Jim Bacon Avatar

    Freedom Works, I probably didn’t express myself as clearly as I should. I didn’t mean to imply that we shouldn’t build new roads — only that we cannot solve our congestion problems by doing nothing but building roads. If the economy and the population are growing, we’re going to need more roads. The key questions are: how do you pay for them, and where do you build them? I believe we should move towards a user-pays system as much as possible: a Vehicle Miles Driven tax for maintaining the road system and congestion tolls for adding new capacity. We also need to employ a Return on Investment decision-making process rather than a politics-driven decision-making process.

    I also think we need to have the flexibility in our zoning codes and comprehensive plans to evolve to land use configurations that are more energy efficient. I wouldn’t go as far as saying that we should abolish zoning codes, but I certainly believe that our codes are overly restrictive and a big part of the problem.

    The other big challenge is figuring out a way to make mass transit a more competitive option. Right now, for a wide variety of reasons, buses and rail are not attractive alternatives for many Americans. Arbitrarily dumping billions of dollars into projects like the Washington Metro does not strike me as a cost-effective alternative to one-man-one car. We may have to reinvent mass transit as a private-sector institution responsive more responsive to the marketplace.

  5. boboroshi Avatar

    Jim –

    I agree that zoning has been one of the biggest messes created by the government. Just look at US-29 heading north from Charlottesville. It has become seas of asphalt with various big box stores in strip malls and four lanes each way. And traffic is still horrible as people continue to develop further and further out US-29. You see the same thing on the I-66 corridor. The I-66/US-29 interchange at Gainsville used to be all farm and industrial land. Now it’s home to obscene numbers of new home developments, shoddily constructed and overtaxing the existing roadway infrastructure. The developers don’t have to pay for creating the mess. The taxpayers do. And usually by that time, the developer has moved down the road ten miles and is building the next group of

    Reinventing the rail (and in turn mass transit in general) structure, and not just what we think of as rail (e.g. Amtrak, VRE, MARC, Metro) is critical. What about street cars? When all else fails, you can still put a horse in front of it and pull it along. But you are right in saying it’s not an attractive option. Most people don’t care to sit (or stand for that matter) in a Metro car for the hour ride from Vienna, VA to downtown. Why would they want to do it for a two hour ride from, say, Manassas or Dulles? I do believe a car tax akin to London or your vehicle-miles-driven concept would do well to encourage carpools, but people see driving as their right, and I expect a mild uproar over any proposal that threatens someone’s perceived inherent right to drive.

    The other tangential issue with oil is that pretty much everything relies on an oil based economy right now. Not just transportation. Pharmaceuticals, pesticides, the fabrication of solar panels, etc. Corn for Ethanol isn’t even harvestable without massive amounts of fossil fuel inputs. Our grocery stores have food completely out of season that’s trucked/shipped from halfway around the world. People don’t cook with the seasons any more.

    So it’s not just about roads and cars, It’s about a fundamental shift in the way we do things. But roads and cars are, in a way, the enabler that has created more issues.


  6. Larry Gross Avatar
    Larry Gross

    The nice man from the Economist on C-Span this morning said that countries where gasoline costs $4-5 a gallon are pretty much unfazed by $90 oil – a blip for them.

    Also said that the U.S. uses 1/2 of the gasoline in the world.

    I agree with those who say it is all about mobility – but here’s a question.

    Do we have more/better mobility in this Country than other industrialized countries?

    Does mobility translate into a better economy?

    Japan has virtually no oil resources and they’re cleaning our clocks on autos manufacturing..

    So – is there a link between mobility and eonomic vitality and if so.. is the only/best way of getting it. by driving one person-one car?

    From my point of view – and others touched on this – mobility can be achieved in very inefficient and expensive ways and the US proves it.

    Mobility does not necessarily imply efficiency… mobility can be achieved … efficiently…

    In fact… let’s say we replace oil with electric (cars), would we likely drive any less than we do now?

    Would congestion go away merely because we switch from gasoline to electricity?

    Wouldn’t the opposite occur if we switch to electric cars that cost the equivalent of $1 a gallon to drive?

    and here’s some irony – even worse congestion – but less pollution in our urban areas…

    Would we be trading less dependence on the middle east for hundreds of more coal-burning power plants and/or nukes?

    or would we?

    The gasoline tax would cease to be a viable funding mechanism for new roads. No longer would we have these enormous road-building slush funds…

    Where would the money for new roads come from?

    Probably from tolling and/or charging by the mile which would more tightly link actual costs to personal travel expenses.

    Would this end up moving us toward more efficient mobility?

    At that point – would rail and transit cost no more than tolls or mileage fees?

    Would this country start to look more like Europe and Japan in terms of mobility?

    Would this be a bad outcome for the US?

  7. Groveton Avatar

    America’s standard of living is largely built on the back of cheap oil. Lose the cheap oil and you’ll lose a chunk of that standard of living.

    As long as oil keeps rising in price faster than the combination of disposable income growth and conservation measures we will be sliding into a hole. The hole comes from the fact that each additional dollar paid for gas is a dollar not spent for something else. And just paying more for gas does not make anybody more productive (other than some oil company investors and Middle Eastern shieks).

    Europe is not the United States. Try to find an SUV or pick up truck being driven by a private citizen in England. Try to find a 1,500 house subdivision with each house on 1/2 acre.

    Tax the energy, tax the cars, tax the roads, tax every inefficient form of energy use. Then – use the tax money to fund a series of major initiatives to commercialize alternate energy.

    I don’t usually espouse a bigger role for government. But this is a crisis and the “free markets” are just not going to solve it in time.

  8. Anonymous Avatar

    For European nations diposable income of households is calculated as follows:

    Gross domestic product at market prices

    + Balance of primary income from rest of the world

    -Fixed capital consumption

    = Net national income at market prices

    -Balance of current transfers to/from rest of the world

    = Disposable income of all sectors (100%)

    -Disposable income of financial/non-financial corporations
    and private non-profit organisations (average 4%)

    -Disposable income of the State (average 25%)

    = Disposable income of private households (average 71%)


    So, changing oil prices will affect more than the standard of living. They’ll affect the GDP and the Balance of income from the rest of the world.

    Taxing inefficient energy use will increase the disposable income of the state and decrease the personal disposable income – which supports a big portion of the GDP.

    If you invest the tax money in addtional fixed capital expenditures this further lowers the net national income and therefore the disposable income of all sectors.

    In other words, you need to be damn sure that what you ar einvesting in isn’t worse than what you have.

    In 1996 the French rail system generated $ 1.67 billion in revenue, but it cost $ 11.67 billion to run. Now, what is the size of France compared to the size of the U.S.

    Who will be the first to suggest we make that kind of “investment” becasue it is more “efficient” than what we have?

    Oh yeah, among other things, such investments, along with higher energy costs will mean we have less to spend on—–the environment, among other things.


  9. Anonymous Avatar

    “MANAGERS in less developed countries have more purchasing power than their peers in rich economies. A study this year by Hay Group, a consultancy, compares senior managers’ disposable income across 47 countries, by looking at average salaries, then taking into account income tax and living costs. Managers in oil-rich, tax-free countries have most to play with: disposable income in Saudi Arabia tops $229,000. Emerging economies, where pay is generous due to high demand, also feature strongly. Western European countries do less well, with Spain the highest-ranking country by virtue of its low cost of living. America fares poorly, with an average of $104,900.”

    Does this strike you as being similar to Jim Bacon’s anlysis which showed that NOVA residents are not as well off as ROVA residents?

  10. Groveton Avatar


    I believe that the free market generally fails in the early stages of a crisis – especially a crisis that comes along more suddenly than expected. I see oil prices as just such a crisis. I think the “free market” needs some help. I do not feel the same way about health care where I think the free market will solve the problem.

    No doubt that higher taxes cut into disposable income. But we’ve gotten ourselves into a hole with our reliance on cheap oil. The first thing to do when you’re in a hole is to stop digging. The next thing is to dig yourself out of the hole. That will be quite a challenge with regard to energy prices in the US.

    Settlement patterns is a great example. What would it take to get to sensible settlement patterns in the next 10 years? Do you really think you can fix the zoning issues and then wait for the free market to act. There’s a lot of sunk costs in the old settlement patterns.

    Alternate energy seems like the atom bomb to me. I guess the government could have just said to “free enterprise” – if you build me one of these suckers we’ll pay a fortune for it. Instead, the government established the Manhattan Project and built the beast – for better or for worse.

  11. Anonymous Avatar

    “There’s a lot of sunk costs in the old settlement patterns.”

    Yes. There are also a lot of old abandoned farm houses sitting around, and they had sunk costs, too. We have seen plenty of migration induced by economic conditons before now.

    The economic wrath the current housing crisis is making may be nothing compared to the housing crisis the energy shortage creates. When the time and costs are right we may be surprised at how “mobile” people become, and how high the price is.

    If we make alternative energy cheap too soon, it will still have to compete with oil and will need larger subsidies. High Oil prices will make more oil available, so investing in alternative energy too soon could artificially lower the supply of oil. So, higher oil prices guarantee that we will have more oil and that we shift to alternate energy sources at exactly the right time – or do without.

    Such a sudden transition comes with its own costs, and it assumes alternative energy is actually available. It could turn out that it is available but only at a very high price. So high that some people will do without.

    Now that, would be an atom bomb.

    That said, I agree with you: it will help smooth things out if the goverment invests in helping along the transition. Wasn’t it the case in “The Grapes of Wrath” that the migrants were kicked from camp to camp until government controlled camps were established?

    Now the question is what do we invest in? We can’t agree on the correct balance between mobility and accessibility now, how can we do it for an unknown energy future?

    Concrete is highly energy intensive both to create and to work with. It doesn’t repair well. But we mill up and re-use asphalt all the time. The right anser is different at different energy prices.

    We make a big deal out of European settlement patterns and transit, but across Europe air travel and auto travel is increasing while rail travel is stuck at around 6%. Another thing we forget is that a lot of rail use in Europe is by foreigners, which makes subsidising rail more palatable.

    Rather than attempt to emulate the French rail situation on a much larger scale, my guess is we would be better off doing as you say: do a Manhattan Project or WPA on alternative energy, until we get a handle on the real costs.

    But that’s just my guess.

    If we are going to do a WPA style thing, hurry up. I need to replace my antique oil burner — but I still can’t afford solar, yet.

    I’d hate to see still more sunk costs in something that is going to be abandoned.


  12. Anonymous Avatar

    I wouldn’t get too hung up comparing to rail in Europe. A lot of the subsidies don’t go to running an efficient system rather they go to running trains to locations local pols insist on. Think how many unnecessary, useless routes that Amtrak runs on due to political interference and multiply that out even worse. Add in very powerful unions who also influence routes and you have a system that must be heavily subsidized to work.

    As RH says if you subsidize alternate energy, then demand for oil will drop and the price of oil will drop requiring ever larger subsidies for alternate energy. Even some kind of carbon tax could cause the same situation where alternative energy builds up to a level, but the decrease in oil prices makes further gains difficult and slow.

    As far as SUVs in Europe go, they are increasing in popularity, the only limiting factor being the road sizes and difficulty parking, not gas prices. Go to England or Germany and you will see lots of Mercedes, Porsche, and BMWs, and these aren’t the small engine type either.

    Europe has proven that high gas prices hardly change overall behavior; those at the margins buy more fuel efficient cars, but overall driving barely moves. In fact gains in population and income cancel out any gas usage savings. Making a revolutionary change in energy use will take a lot more than taxes and high wholesale prices.

    I’m not sure what the solution to all this is, but I know $90 oil won’t even make a dent; heck I don’t think $190 or even $290 oil would change much of anything ($40 change in wholesale only adds about a $1 to the retail price). We’ll still have congested roads, global warming problem, and expanding sprawling suburbs. Like I said I’m not sure what we can do that would actually work, but whatever it is will have to be massive and very well thought out.


  13. Larry Gross Avatar
    Larry Gross

    well I filled up my pickup for $51 today at 2.60.

    Lucky for me the last tank was on Oct 10.

    Lucky for me I don’t commute 100 miles every day from Fredericksburg and would have to spend $50 every other day in addition to HOT lane tolls.

    The question is – in the face of higher prices for fuel – will the average person continue the status quo and not do anything at all?

    That’s what I think – folks need to appreciate – that the likelihood of an unchanging status quo with regard to gasoline prices and actions that people might take in response to those rising prices is not not low.

    $3 gasoline actually caused a DECREASE in gasoline tax revenues in some states.

    It might be that folks will get used to $3 gasoline but what about $4 gasoline?

    For the guy that drives 20 miles to work and home again.. no sweat.

    but what if your commute is 100 miles a day? Do we really think folks will continue as before?

    See that’s the thing about saying we better be careful about what actions the government might take but that ignores the fact – that changes are going to occur – with or without the government taking action.

    What you cannot assume – is an unchanging status quo.

  14. Anonymous Avatar

    “In 1996 the French rail system generated $ 1.67 billion in revenue, but it cost $ 11.67 billion to run.”

    Please feel free to cite the source of this data. RH has more than a passing tendency to cite sources that, upon examination, do not stand up. We hope this is not one of them.

  15. Groveton Avatar

    Here is why the US needs to worry more than Europe:

    Gasoline consumption (2003 data) (liters/person)

    1. Europe: 275.6
    2. France (for example): 260.4

    3. North America: 1,593.1
    4. United States: 1,635.2


  16. Anonymous Avatar

    Free Market?

    What free market?

    In both the health care and oil industries you very well may have a GLOBAL free market for both goods.

    However, once you enter the continental United States the free market no longer exists. You have what can best be described as a CARTEL in both industries.

    Here’s the definition of CARTEL:

    “A cartel is a formal (explicit) agreement among firms. Cartels usually occur in an oligopolistic industry, where there are a small number of sellers and usually involve homogeneous products.

    Cartel members may agree on such matters as price fixing, total industry output, market shares, allocation of customers, allocation of territories, bid rigging, establishment of common sales agencies, and the division of profits or combination of these. The aim of such collusion is to increase individual member’s profits by reducing competition.”

  17. Anonymous Avatar

    “In 1996 the French rail system generated $ 1.67 billion in revenue, but it cost $ 11.67 billion to run.”


  18. Anonymous Avatar

    Larry is right about the cost of fuel.

    High fuel prices have cut general aviation flying inprivate planes almost in half.

    This is throwing a strain on many county budgets because county airports have long been a profit center.


  19. Anonymous Avatar

    “RH has more than a passing tendency to cite sources that, upon examination, do not stand up. We hope this is not one of them.”

    If you have an example, post it, and I’ll be happy to try to re-excavate the source. Normally I try to supply the source with the first post, but I may paraphrase it later without attribution.

    I do cite sources which may have a dog in the fight, but I try to do this evenhandedly, and I do it mostly to show the variety of “data” that is printed,or to show that reasonable people may have legitimate differences in interpretation.

    If you have a problem with the veracity of my data, you must be apalled at some of what passes for fact.

    If you can show that one of my sources is outright wrong, I’ll be happy to agree with you.


  20. Anonymous Avatar

    Ron Paul

    No War

  21. Anonymous Avatar

    Let me play Devil’s Advocate. The laws of supply and demand tend to allocate resources better than government decision so long as the market is working.

    But is the market working?

    So much of upward pressure on oil prices does not seem to have much to do with supply and demand for oil products, but rather, with speculation by hedge funds, etc. Can anyone explain how this speculation advances the public interest? If not, should Congress pass a law that prohibits the ownership of oil futures, etc., except by persons or entities that consume or refine oil?


  22. Larry Gross Avatar
    Larry Gross

    Gasoline consumption (2003 data) (liters/person)

    Europe: 275.6
    United States: 1,635.2

    this is an interesting number…

    about 400 gallons.

    Now take a look at many urbanized areas including NoVa and a typical suburban commute.

    Let’s pick Fredericksburg – 50 miles away.

    That’s 100 miles a day, 2000 miles a month and 24000 miles a year.

    If they get 20mpg – it’s 1200 gallons – 3 times the national average and more than 10 times the average European useage.

    30 mpg .. 800 gallons still way more than average consumption in both the US and Europe.

    Further – this is also 3 times the pollution generated by other drivers and 10 times the pollution of European drivers – and a significant impact to NoVa and other urban areas air quality.

    Commuting from exurban settlement patterns to jobs in urban areas – WILL be affected by the price of gasoline. Not everyone makes so much money that $3 or $4 a gallon won’t pinch them.

    So.. some people WILL Change in response to $90 or $100 oil and in the NoVa area it will be one part of a double whammy – the other being HOT lane tolls.

    I think it will have an impact.

    In fact, I wonder if gasoline was priced at the same level in Europe and Canada as it is currently priced in this country – whether the useage would be equivalent or not.

    If it would be – then you’ve got your answer about consumption if the price goes to #3 or $4 a gallon (or higher).

    so… we don’t get to “freeze” in place on this issue, i.e. keep our status quo.

    Change IS going to happen and the real question is how fast.

    Will oil go up in price in the next 5 years at the same rate it has gone up in the previous 5 years or will it accelerate?

    If you are buying a car.. soon.. what would you bet?

    If a bunch of people buy more fuel efficient cars – what happens to future gas tax revenues – is that fall BELOW what is necessary to maintain existing roads – much less be enough to build new ones?

    Bottom Line: Change IS coming… and you can stand there looking at the headlights coming towards you or you can do something besides becoming economic road kill.

  23. Jim Bacon Avatar

    TMT, speculators have always played a role in oil pricing on the margins but they don’t drive fundamentals. Here are the fundamentals: (1) Consumption, driven by spreading Third World prosperity, is growing. China and India are entering the phase of development marked by mass automobile purchases; (2) endemic political instability and/or short-sighted government control over the oil sector in major oil producers from Iran and Iraq to Nigeria and Venezuela; and (3) depletion of the “cheap” oil mega-reserves. Oil companies are still finding new sources of oil, but they are much more remote and expensive to exploit. A rising price for oil is all but inevitable, regardless of what role speculators play.

    Larry, You’re right, change *is* coming. And Virginians *will* be hurt more than most. Public policy can mitigate some of that pain by providing Virginians more alternatives in where/how they live and the types of transportation options available to them.

  24. rodger provo Avatar
    rodger provo

    Jim Bacon, Larry Gross –

    I agree with both of you relative to this posting and the issues.

    Virginia’s development patterns
    are very much like those in southern California – sprawl forcing
    residents driving long distances
    to their employment.

    We will suffer greatly as oil prices climb above $100 a barrel.

    But fear not our political culture
    will continue to bash gays, the
    illegals amongst others, abortion
    advocates, gun opponents and others
    while we fail to address some of the major fundamental issues we are facing at the state and national level.

  25. Anonymous Avatar

    “Public policy can mitigate some of that pain by providing Virginians more alternatives in where/how they live and the types of transportation options available to them.”

    European cities also have a much shallower job gradient than American cities, so that’s an area that policy could help out in, too. It is going to take a long time before we abandon our sunk costs. Larry is right higher oil prices will have an impact, the question we have to ask is whether the policies we put in place will make the impact greater or less, and whether the end result will be better or worse. That answer is going to depend on more than whether we reduce pollution, and how much.

    I burn a lot more fuel in my tractor than I do my car, but the car returns a lot more money. Which usage is a greater waste or has a higher social cost?


  26. Anonymous Avatar

    Jim, of course, the factors you cite are key drivers of oil price increases. But speculators are driving up the prices higher.

    From a October 6, 2007 article in the Wall Street Journal, “‘Factors other than supply and demand are now impacting the price,’ contends oil-and-gas trader Stephen Schork, who publishes the Schork Report on energy markets.” “[E]conomists worry that institutional investors will push up oil prices even more. Conditions are especially profitable now for the pension funds and others who are holding near-term oil futures. More money is pouring into this trading strategy, exerting upward pressure on prices.”

    There is quite a bit more information online about this speculation. I always thought that supply and demand were the key factors in a free and functional market. How does one describe a market that is being governed by factors other than supply and demand?


  27. Anonymous Avatar

    “But speculators are driving up the prices higher. “

    In the futures market, there are also buyers betting on lower prices, so it is not quite corect to imply that speculators only drive prices higher.

  28. Anonymous Avatar

    “As an energy analyst, I can tell you that the science on global warming is terrifyingly clear: to have even a shot at fending off climate catastrophe, the world must reduce carbon dioxide emissions from fuel burning by at least 50 percent within the next few decades. If poor countries are to have any room to develop, the United States, the biggest emitter by far, needs to cut back by 75 percent.

    Although automobiles, with their appetite for petroleum, may seem like the main culprit, the number one climate change agent in the U.S. is actually electricity. The most recent inventory of U.S. greenhouse gases found that power generation was responsible for a whopping 38 percent of carbon dioxide emissions. Yet the electricity sector may also be the least complicated to make carbon free. Approximately three-fourths of U.S. electricity is generated by burning coal, oil, or natural gas. Accordingly, switching that same portion of U.S. electricity generation to nonpolluting sources such as wind turbines, while simultaneously ensuring that our ever-expanding arrays of lights, computers, and appliances are increasingly energy efficient, would eliminate 38 percent of the country’s CO2 emissions and bring us halfway to the goal of cutting emissions by 75 percent.

    To achieve that power switch entirely through wind power, I calculate, would require 400,000 windmills rated at 2.5 megawatts each.


    How much land do the industrial turbines require? The answer turns on what “require” means. An industry rule of thumb is that to maintain adequate exposure to the wind, each big turbine needs space around it of about 60 acres. Since 640 acres make a square mile, those 400,000 turbines would need 37,500 square miles, or roughly all the land in Indiana or Maine. “

    Wind, Windpower, and Open Space Charles Komanoff Orion magazine.htm


  29. Anonymous Avatar

    What needs to be understood is that peak oil likely means peak food. About 17% of US energy use goes into agriculture. The food in the grocery store that you buy traveled a long way to get to you, and it was probably grown with fossil-fuel intensive fertilizers and pesticides. As of 1994, it took 400 gallons of oil and equivalents to feed each US citizen, and that number has probably gone up.


  30. Larry Gross Avatar
    Larry Gross

    hmmm.. how many Americans are at “peak” weight?


    what percentage of Americans at obese or overweight?

    Aggregate Medical Spending, in Billions of Dollars, Attributable to Overweight and Obesity, by Insurance Status and Data Source, 1996–1998

    $51.5 to $78.5 Billion dollars

    Gee… let’s crank this through your “total balanced costs” equation…

    do you think… we’d actually save money by using less oil/electricity?

    You know it’s kinda hard .. lecturing to the rest of the world about “over consumption” when you’ve got so much in your belly and mouth that they can’t make out what you’re saying…

  31. Anonymous Avatar

    What lecture?

    I just posted someone else’s fact, without comment.

    I actually think that you might have a point. Less food and more exercise might save us a lot of money. I’m glad to see you are starting to get how it works.

    To the extent we use less energy intensive agriculture for that end, we might be OK. But what if, like oil, we go past peak on food production and there is no longer enough resources to feed people.

    We might discover that not every reduction in energy use is a good thing, and not every reduction in energy use has the same value.


  32. Anonymous Avatar

    12:26 You prove my point. Speculative buying and selling that drives down oil prices would also seem inconsistent with the laws of supply and demand. (However, the facts are such that it’s pretty clear that speculators have added a significant price premium to oil, which, in turn, is hurting the U.S. economy.) If we want economically rational behavior, we want sellers and purchasers to react to price changes caused by changes in supply and demand. How do speculators and arbitrageurs aid the market?

    There’s a big difference between a oil refiner or large-volume purchaser hedging in the market and hedging by big investment funds that neither buy nor sell oil products as part of any real business operations.

    Moreover, the level of speculation, trading without producing, etc. is symptomatic of bigger problems in the economy. We need investment in R&D, new technology, new approaches to the market, etc. But we see more and more money going into speculation. Making a big buck without producing anything.

    It’s quite similar to the condo flippers in Miami, Las Vegas, etc. Perhaps, we should lower taxes on real investments and raise them on speculators.


  33. Larry Gross Avatar
    Larry Gross

    Would we call folks who buy/sell commodties such as corn and wheat or orange juice or coffee speculators also?

    It would seem like if a fellow is doing research on what the price of oil (or orange juice) might be.. months from now.. and he’s plunking down real money that he could lose if he is wrong… that he actually might be providing a valuable service to the rest of us… i.e. a “heads up”.

    .. but then again.. that was before Enron…

    can markets be manipulated?

    you bet… if Americans stop buying gasoline .. I’d guarantee it…


  34. Anonymous Avatar

    Larry – Market manipulation concerns me. There is a very strong incentive for people to try to control markets. Just as free sells well, so too do monopolists prosper. History is full of examples of individuals or companies trying to manipulate a market.

    The nature of the good needs to be considered as well. For example, would it be appropriate for speculators to bid up the price of water in Atlanta or how about in Southern California? That is not to argue that water costs should be subsidized, but would it be good public policy for the firefighters in SoCal to pay speculative prices for water to fight the fires?


  35. Anonymous Avatar

    Gee, guys, go read up on this.

    Every futures contract involves a buyer AND a seller. A short and a long position. The contract can be settled at any time in which case either party may make or lose money depending on how the cash or spot market moved relative to the contract price. Since both sides are speculators, you cannot say that speculation drives the price up.

    If the contract is not settled until the strike date then the value of the contract and the price on the cash or spot market will merge.

    The actual price on the cash or spot market does not depend on the futures prices, instead the futures prices are derivative to the market prices.

    Buyers and sellers may be actual producers and users, but there is no requirement for that. If I make flour, I can enter a contract to buy wheat at some future date at a given price. If the actual price goes up compared to my contract, then I can demand delivery and I have made money. The farmer who produced the wheat loses money over what he might have made, but he gets paid sooner, so to him the contract is a form of borrowing against future production.

    But, If I’m the flour manufacturer, I am indifferent as to whether I get the wheat, or whether I get the cash, and go buy wheat at the now current price on the spot market.

    Likewise, the farmer may decide that he now has an opportunity for a better price later. He may decide to not deliver the wheat, and just pay out the cash difference, figuring the wheat price may yet go up enough to cover the cost of his “borrowing”.

    The same goes for anyone who opts to buy a futures contract. There is no requirement to deliver the goods: you can always settle for cash. If you don’t have the cash, then you would be required to go buy the goods and deliver them, so the goods (or the price of goods on the spot market) are the collateral, sort of.

    It is like fantasy football: you do not have to own an actuall team. But you can place bets and win real money on your imaginary team: depending on how well the real players do.

    If you buy a magazine subscription, you are buying a futures contract: either the magazine supplier gets you the magazines, or he owes you a refund.

    The magazine subscriptions allow the publisher to stay in business when he might not be able to on the face of rack sales alone. Depending on his current needs, he can offer greater or lesser discounts for “futures contracts” of varying lengths.

    The futures market assists producers and buyers because the and “speculators” (both up and down) provide more liquidity than the actual market can provide. So, it is not true that speculators produce nothing: they produce liquidity and perform a kind of banking service. The gains and losses on the contracts amount to interest earned and paid for the time value of money. That eventual value is ultimately determined on the spot market.

    The actual users, prducers and buyers use the market to hedge their risk. They can hedge either direction: secure a price now to avoid the risk of price goin up, or avoid the risk of price going down. Hedgers try to minimze their risk.

    Speculators try to maximize their risk to increaase their profits. They depend on the very price changes that hedgers are trying to protect themselves from, and they too can place a bet in either direction.

    But, in the end, their success in the futures market depend on what happens in the spot market, not the other way around.

    If there is market manipulation, it is a failure on the part of regulators: ifa magazine vendor sells subscriptions to a magazine he has no intention to produce, then that is fraud.

    If you buy a cable TV subscription for a hundred channels and one of the channels goes broke, the cable provider owes you a refund or an acceptable substitute. Likewise he can’t sell you service for a year and cancel after 10 months.


    If you buy property under a certain zoning code, the county has promised you certain benefits, but if they renege on the deal, who are you going to go to for regulators?

    When it comes to futures contracts, you are probably better off with any slimy speculator, rather than the government


  36. Larry Gross Avatar
    Larry Gross

    TMT – no guestion the markets can be manipulated.

    Any cursory reading of the Enron debacle should convince even the skeptics.

    I’m coming around to the point of view that consumers are fodder for those engaged in the markets.

    The mortage debacle is proof positive.

    The government assures a profit for those who want to play games with mortgage interest.

    So.. it didn’t take long for the greedy to figure out that juicy profits were possible by matching up ARMs with those who don’t quality for mortages anyhow.

    We’ve got folks with mortgages that can’t qualify for an auto loan… (so they lease).

    but yes.. no question that the markets can be manipulated… and I suspect there is much more of it going on than we hear about.

    Be that as it may.. we used 25% of the world supply of oil and 50% of the world supply of refined gasoline so.. we make ourselves targets for manipulation.

    This is the core plan of our current administration in my view.

    Consumption is good for business. Conservation of resources is bad for business.

    Our dependence on foreign oil is so predictable.. so gauranteed that speculators can – count on us – for their profits.

  37. Danny L. Newton Avatar
    Danny L. Newton

    I have been observing that there is now a noticeable disconnect between the rate of growth in gross domestic product and the rate of growth in the number of vehicle miles traveled (VMT) in the Unites States. We have been experiencing since mid 2005, nationally, the longest flatteneing of the vehicle miles traveled curve since at least 1979. Even past recessions could not equal this feat.

    You can blame that on $3 dollar gasoline but the inflation adjusted cost of regular gasoline since 1980 is $3.33 in 2006. Also, I noticed that the percentage of disposable income spent on Transportation is very stable, averaging 11.3 percent and the average stays between 11 and 12 percent 88 percent of the time going back to 1960. 22 out of the last 26 months have been experiencing below average growth of VMT. The inflation adjusted GDP however still seems to be on the rise.

    This disconnect seems to call out for an explanation since the connection between transportation and economic development is never questioned especially by the Chambers of Commerce and state transportation planning mavens. I suspect that the cause may be the baby boomers retiring plus some productivity work arounds in the private sector. The decline in VMT may be a bad sign for those wanting to build toll roads but a lot of toll toads deals use local GDP adjustors to set toll rates so they should do OK.

  38. Jim Bacon Avatar

    Danny, Interesting statistics regarding the disconnect between growth in GNP and Vehicle Miles Driven. I’ve predicted that something like that might happen as (a) the population aged (retired people don’t commute), (b) Double Income No Kids households moved back into urban cores, (c) telework became more prevalent and (d) developers built more compact, mixed-use projects designed for walking and biking.

    What data series are you using to draw that conclusion?

  39. Anonymous Avatar

    Re Market Manipulation. Perhaps, this really isn’t a free and efficient market for the trading of oil futures. If the propane market can be manipulated, why not the oil market?

    Former BP Employees Indicted In Price-Fixing Case
    BP Reached $373 Million Settlement In Case
    WASHINGTON (AP) ― Oil and gas giant BP PLC agreed Thursday to pay $373 million in fines and restitution to end investigations into whether it manipulated energy markets and violated environmental laws, the Justice Department said.

    Additionally, four former BP employees were indicted by a federal grand jury in Chicago on 20 counts of mail and wire fraud charges connected to the price-fixing scheme.

    BP, Europe’s second-largest energy company, will pay an estimated $50 million as part of an agreement to plead guilty for violating the Clean Air Act as a result of a 2005 explosion at its Texas City refinery that killed 15 employees and injured more than 170 others.

    Additionally, it will pay $20 million in criminal fines and restitution to the state of Alaska and the National Fish and Wildlife Foundation for pipeline leaks of crude oil that polluted tundra and a frozen lake in Alaska.

    The rest of the fines aim to punish BP for conspiring to manipulate propane prices.

    Federal investigators have been looking at whether BP traders tried to pump up profits by cornering the propane market, driving spot prices in February 2004 as high as 94 cents a gallon in places like New York, Pennsylvania and Illinois.

    Investigators alleged that traders at BP Products North America Inc. bought massive quantities of propane to be delivered over a pipeline that starts in Texas and then withheld supplies, forcing other buyers in the wholesale market to pay an unnaturally high premium.

    The over-the-counter market includes trades conducted on the phone or electronically in products not listed on exchanges. In the end, BP did not profit because the financial benefits of the scheme were outweighed by the unexpectedly huge costs associated with carrying it out.

    BP also is grappling with fallout of earlier problems, such as the Alaskan oil spill and the refinery blast that have resulted in ongoing higher maintenance costs.

    BP told The Associated Press the company has cooperated with authorities and will continue to do so. It declined further comment.


  40. Larry Gross Avatar
    Larry Gross

    ….”.BP, Europe’s second-largest energy company, will pay an estimated $50 million …violating the Clean Air Act … explosion .. killed 15 employees”

    hmmm… I wonder what the clean air violation was.. brain matter?


  41. Anonymous Avatar

    In the end, BP did not profit because the financial benefits of the scheme were outweighed by the unexpectedly huge costs associated with carrying it out.

    In the end, Environmentalists did not profit because the financial benefits of the scheme were outweighed by the unexpectedly huge costs associated with carrying it out.


  42. Anonymous Avatar

    Did you se the multi page article in Time concerning the building backlash against toll roads?


  43. Anonymous Avatar

    “hmmm… I wonder what the clean air violation was.. brain matter?


    That is pretty inappropriate. Just the kind of thing to increase contributions to your favorite cause.


  44. Larry Gross Avatar
    Larry Gross

    re: toll roads

    yes. across the county opposition is growing to toll roads especially those “owned” by private companies.

    if our vaunted national leadership insists on “surgical” strikes against IRAN – what will happen is $4 or $5 gasoline which will spur fairly significant changes in the purchase of fuel-efficient cars and the use of transit and car/van/bus pooling – with even less money going for gas taxes.

    Eventually – the American people will have to decide how they want to pay for new roads – and my money is still on toll roads.

    it just takes a while for manyfolks to understand that their choice is either more money or not more money.

    once they realize that “not more money” is not an option. they’ll decide and I’m betting that they want “user pays” and not higher taxes.

    a lot is riding on the Wash Area HOT Lanes – and just FYI – Maryland plans HOT toll lanes also but will not allow free carpool passage.

    How the HOT lanes – with and without carpools eventually “work”, I predict will have an impact on future plans.

  45. Anonymous Avatar

    Actually, not more money is an option. I’m betting that more money and more jobs will move to Henrico county etc. where they still have small amounts of congestion. People and businesses will be spurred on to do so by the increasingly expensive and devreasingly effective costs of pollution and aggravation control in urban areas.


  46. Anonymous Avatar

    The choice is NOT either more money or not more money. User pays just means that fewer people will pay more money.

    Since fewer people can afford it even less that the public as a whole, who benefit just as much, it won’t happen. Teh balkanization this will cause will be seen as counterproductive and it will be stopped.

    By then, it will be too late, and the cost of buying out the contracts will be enormous. I’d suggest we can save a lot of money by giving the contractors property rights instead of contracts: that way we can rescind them with impugnity.


  47. Anonymous Avatar

    need to rename this for $100 oil.

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